Non-Manufacturing Activity Strengthens In December - January 4, 2013

The non-manufacturing sector perked up nicely in December, recording a survey result of 56.1. That was not only well above the 50.0 dividing line between a contracting services sector (below 50.0) and an expanding one (above 50.0), but also ahead of the November result (54.7) and expectations of 54.2. This is an important area as it covers the aforementioned services category that accounts for some two-thirds of aggregate gross domestic product.

Meanwhile, this survey result was the best since last January, when the reading came in at 56.8, and suggests that the fourth quarter may well have been somewhat better than the consensus GDP growth forecast of about 1.2%. Our sense is that GDP growth may be closer to 1.5%--or even somewhat better.

This survey, which is put out by the Institute for Supply Management, a trade group, is the companion to the manufacturing survey report that was issued on Wednesday and which had shown a smaller rate of expansion (50.7). As for this report, it is compiled by surveying more than 370 purchasing executives nationwide in 62 different service industries. The responses reflect the change in the current month versus the prior month.

As for individual components, we saw a pickup in new orders to 59.3 from 58.1 and a big surge in employment, which rose from 50.3 to 56.3. On the other hand, we saw declines in inventories and backlogs. Overall, though, this was a good report and somewhat better than generally expected.

As to individual respondents, improvements were noted by purchasing executives in professional, scientific, and technical services. We also saw optimism in public administration, wholesale trade, transportation, and warehousing.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.